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ISLAMABAD: The Federal Board of Revenue (FBR) has reportedly expressed reservations at Petroleum Division’s policy guideline for import of crude oil and petroleum products on foreign supplier’s account through Customs bonded storage facilities, official sources told Business Recorder.

Pakistan is an import dependent country with regard to crude oil and petroleum product requirements. Consequently, Pakistan imports about 9-10 million tons each of crude oil and petroleum products (HSD/MS/ FO) every year. Bulk of these imports procured from the Arab Gulf Market under long term arrangements as well as spot purchases.

Downstream oil marketing/distribution sector in Pakistan has been deregulated since last two decades. Consequently, number of Oil Marketing Companies (0MCs) and oil importers operating in the country have multiplied in last 20 years. Local refinery supplies being constant and oil demand consistently increasing, the import dependence has also multiplied.

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Smaller OMCs with comparatively lower import requirement are facing dire issues in procurement from international market and importing larger size vessels/parcels has become too difficult for them. Therefore, increasing number of smaller import vessels is straining their supply/logistic chain and resulting in congestion at ports and demurrage incidence.

Moreover, issues of LC opening/LC confirmation by international banks and forex liquidity are also impacting our procurement planning.

Petroleum Division has lately received various proposals from local and foreign companies to make necessary policy/regulatory arrangements for allowing import on foreign supplier’s account whereby: (i) foreign supplier will maintain inventory of crude oil and petroleum products in bulk form, in their own Customs Public Bonded Warehouses located around the Pakistani ports (without foreign exchange remittances), pending its sale to local purchasers or its re-export there from to other foreign countries; (ii) foreign supplier shall establish a subsidiary company (“The Consignee”), registered in Pakistan having bank accounts in the country under the relevant Pakistani laws/rules for undertaking operational/business activities on behalf of foreign supplier as well as local purchasers; (iii) the Consignee shall be bound to develop their own dedicated storage infrastructure located around port premises only for storing crude oil and petroleum products, duly licensed by the Ogra, under the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules 2016; (iv) the Consignee shall then sell the goods to Pakistan licensed purchasers (Refineries or OMCs) against of Letter of Credit through scheduled banks without requiring LC confirmation by international banks or advance payment in US dollars or Pak rupees, as mutually agreed by foreign supplier and Pakistani purchasers, as per applicable foreign exchange regulations; (v) for selling the bonded goods to the local purchasers, the Consignee shall file Electronic Form (EIF) with his Goods Declaration (GD) for Ex-bonding (EB), to clear the bonded goods for custody transfer to local purchasers for subsequent home consumption, on payment of all applicable duties and taxes by Consignee on behalf of purchasers; and (vi) foreign supplier may re-export their goods, deposited in the bonded warehouse on their account, to foreign buyers/countries, subject to permission from the Ogra.

The sources said, based on existing proposals, Petroleum Division has formulated a policy guideline for import of crude oil and petroleum products on foreign supplier’s account.

However, since Pakistan has not maintained any strategic petroleum reserves as yet, the provision of allowing import on foreign supplier’s account can play a vital role in ensuring energy security in the country.

The proposed arrangement has following benefits for Pakistan: (i) crude oil and petroleum products will be readily available to the local consumers in Pakistan and the time taken in import procurement will be much shorter; (ii) local buyers will be able to procure product both in local and foreign currency and without any LC confirmation from international banks, thus leading to savings on account of banking charges; (iii) bulk buying by the supplier will result in sourcing of goods at cheaper rates and lower freight charges leading to substantial saving for him as well as the local customers; (iv) there is no loss of revenue to the government.

The procedure of repatriation of foreign exchange, filling of GD and clearance on payment of duties and taxes is to be followed on goods cleared for home consumption; and (v) implementation of this scheme in an automated and hassle-free environment is likely to attract foreign investment in bulk warehousing.

Moreover, it will add new storage capacity around port areas and generation of employment opportunities in warehousing business.

According to sources, keeping in view the proposals, Petroleum Division has prepared policy guideline for import of crude oil and petroleum products on foreign supplier’s account through Customs bonded storage facilities.

Petroleum Division has proposed that Ministry of Commerce may be directed to notify the proposed policy provisions in the Import and Export Policy Orders, while the FBR, SBP and Ogra may be directed to prescribe and notify their procedures for regulating and strict monitoring of imports and exports under the proposed scheme.

The proposal was circulated to the Ministries of Finance and Commerce, FBR, SBP and 0gra for their views/comments. Draft policy guideline has been revised/amended in light of these comments.

No significant disagreements have been found except from FBR which has expressed reservations related to in-bonding and ex-bonding which, it argues, can only be made by a single entity. Therefore, Ex-bond GD shall be filed by the consignee and not by the local importer/purchaser, as per provisions of Section 79 & 104 of the Customs Act 1969.

Consequently, a provision has been adopted in the draft policy, whereby foreign supplier will establish a subsidiary of its own for operating on behalf of both foreign supplier and local purchasers including In-bonding and Ex-bonding activities.

Moreover, foreign supplier is also required to develop his own dedicated storage around port areas only for implementing the proposed arrangement rather than utilizing third party storages.

Copyright Business Recorder, 2023


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